Many Small Businesses Already Impacted by Federal Government Shutdown

Posted on: October 10, 2013

The decision by Congressional lawmakers to shut down the federal government at the beginning of October has had a major impact on many people and parts of the U.S. economy, and one area that might be taking a particularly hard hit is the small business sector. About a week and a half into the gridlock, many owners of independent companies already say they’re having difficulties as a result of the decision.

The impact on smaller enterprises brought by the shutdown has many facets, but experts say that the largest could be the result of the U.S. Small Business Administration being all but closed, according to a report from the New York Times. The SBA grants an average of $96 million in small business loans every day, which obviously can have a major impact on the ability of companies to either get off the ground or continue on in their long-planned expansion efforts. That, in turn, can lead to difficulties for the broader economy. On a more granular level, some of these effects are already beginning to take hold.

“We just missed the window [to receive an SBA loan], and now we’ve come to a complete standstill,” Chris Leh, the owner of a new manufacturing company in Ephrata, Pennsylvania, told the newspaper. “I have to go back to my customer and tell him I’m dead in the water and can’t fulfill his needs, and I can’t give him an answer when I can. It’s put me in the most horrible position as a business owner that you can be in.”

With the SBA no longer able to distribute its loans, many companies may turn to their local or even larger regional and national banks, but likewise running into roadblocks, the report said. With the government shut down, these financial institutions cannot check tax data submitted by small businesses (or applicants for other types of loans) because the Internal Revenue Service is running on a bare-bones staff and cannot process these verification requests. Further, companies of all sizes cannot hire because federal services such as E-Verify, which is used to check whether applicants are eligible to work within the U.S., is likewise no longer available.

This may be particularly problematic for small businesses because they have no way to know when the government shutdown will actually end, and therefore could face significant difficulties in the coming months as well, the report said. And because the holiday shopping season is such a busy time for so many companies across the country, an inability to even begin preparations for the potential rush could put many companies significantly behind the 8-ball.

The lasting effects could be substantial Another potential issue that many small business experts cite is that the shutdown came at a time when many owners were just starting to see real improvement as a result of the recovering economy, the report said. As a result, they may have been set back significantly, and the backup in demand for loans and other government services could take a considerable period of time to untangle once again. That, in turn, could leave some businesses waiting potentially months longer than the shutdown lasts to get the kind of assistance they otherwise may have been able to count on.

Owners hoping their companies are able to weather the federal shutdown may want to start looking for more affordable small business insurance options. That could include cutting costs for general liability insurance or other such policies, which in turn can free up thousands of dollars or more per year to devote to other areas of the company as necessary.